From what I have seen, disagreements between cofounders usually start with expectations that were never discussed, such as who works full time, who gets paid first, who has the final say and what happens to the shares if one person stops contributing. Those conversations can feel awkward at the start of a business, but they become much harder once the company has value and the founders already disagree.
A cofounder agreement gives each founder the chance to say what they are committing to and what they expect from the others. It should also set out a way to deal with a serious disagreement, so that the company can keep operating while the founders resolve it. Because the agreement has to work alongside the company's articles, it should be reviewed when investors arrive and a shareholders' agreement takes over some of its terms.
Write down the ownership deal
The agreement should start with what each founder has already contributed and what each one is committing to from now on. Cash paid into the company is different from work promised over the next four years, and the agreement should treat the two separately. If the founders are splitting ownership equally, it is worth discussing openly what "equal" means in terms of time and responsibility, and what should happen if that changes.
Once the company exists, the ownership deal has to be carried out through actual share allotments and the related CAC filings. Any money a founder lends the company should be recorded separately from what they paid for their shares, and expense claims should be kept separate again, so that the accounts show each founder's position clearly.
Salary is the other subject I always raise with cofounders. The agreement should say whether the founders are working unpaid for now or whether unpaid salary is building up as a debt the company will owe later, and the company's budget should use the same assumption. It should also say what happens if the funding round the founders are relying on is delayed or does not happen.
Divide the work and the decisions
Each founder should have clear responsibilities, and the agreement should list the decisions that need the agreement of all the founders. Where a sales promise depends on product work, the founders should agree how delivery dates are approved before anyone makes a commitment to a customer, and they should decide who has the final word where their areas of responsibility overlap.
Time commitments and outside work should also be agreed. If one founder wants to keep a job or a consulting practice for the first six months, the agreement should record that, together with what happens if the arrangement continues for longer and whether vesting continues during a long absence.
Board and shareholder decisions still follow CAMA and the articles, subject to any consent rights investors hold. The cofounder agreement should divide day‑to‑day responsibilities in a way that fits those rules, so that each founder knows which decisions they can take alone and which need someone else's approval.
What happens to shares when someone leaves
Vesting connects ownership to contribution over time. If a founder leaves after six months, they keep the shares that have vested and the company can take back the rest. The agreement should define good leaver and bad leaver events and explain what happens to vested and unvested shares in each case, including on death or incapacity, and it should set out what evidence is needed before anyone is treated as a bad leaver for misconduct.
The price paid for the shares matters as much as the label attached to the departure. Buying shares back at nominal value is very different from buying them at market value, so where market value applies, the agreement should set out the valuation method and the date of valuation, as well as who will buy the shares and where the money will come from. If the company itself is the buyer, the buyback must follow the procedure in CAMA, including its solvency and approval requirements.
A fair process should also be built in, with notice and an opportunity to correct any breach that can be corrected, and severe consequences should be checked for enforceability before they are agreed. I explain the vesting schedule in how founder vesting works, and what happens when a founder actually leaves in working through a founder's departure.
A way through serious disagreement
The agreement should define what counts as deadlock, so that ordinary disagreements remain with whichever founder is responsible for that area. For a genuine deadlock, it helps to allow time for discussion and then a step such as mediation by an agreed independent person, while the business continues to operate in the meantime.
I am careful with buy‑sell clauses, which are sometimes called shotgun or Russian roulette clauses. Under these clauses one founder names a price and the other must either buy at that price or sell at it, which sounds fair until one founder has much more money than the other. In that situation the founder with less money may be forced to sell even at a good price, so the clause should be tested against each founder's real ability to pay before it is agreed.
If neither founder can buy the other out, the agreement should explain how an outside sale or another solution will be explored and within what timetable. It should also say what happens if no offer is received by the deadline.
Transfers and a future sale
Pre‑emption and right of first refusal clauses give existing shareholders the first opportunity to buy shares that another holder wants to sell. The agreement should set out the notice process and any permitted exceptions, such as transfers to a family holding company, and it should require anyone receiving shares to sign up to the agreement.
Tag‑along rights allow minority holders to join a sale on the same terms, while drag‑along rights allow an agreed majority to require everyone to sell. The drag terms should be read closely, especially the warranties and indemnities a founder who is dragged into a sale would have to give. Limiting those to title and capacity is normal, and anything wider should be negotiated.
When an investor comes in, the shareholders' agreement will usually replace parts of the cofounder agreement, so it is worth recording which parts continue to apply.
Protect the work you are building
Each founder should assign their rights in the code and other work to the company, including work done before incorporation, and the founders should check whether a former employer or university could claim any of it. The agreement should also cover confidentiality, and any restriction on competing work after a founder leaves should be narrow enough to be enforceable.
The cofounder agreement should stay consistent with each founder's employment contract and the company's records, and it should be updated when roles or ownership change. Before signing, I would suggest that the founders sit down together and work through two situations, one founder leaving and a real disagreement between them, because if the agreement produces a result that surprises either of them, it is far better to find that out now.
This article is general information and not legal advice. For guidance on your specific circumstances, speak with us directly.